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An inside look at the SEC Office of the Whistleblower

Jaclyn Jaeger | November 1, 2016

As part of our occasional series of conversations with those influential in the corporate governance world, we caught up with Sean McKessy, who served as the first-ever chief of the SEC’s Office of the Whistleblower. McKessy departed the agency in July to join the law firm Phillips & Cohen as partner in its Washington, D.C., office.

In February 2011, McKessy took on the monumental task of founding the SEC’s Office of the Whistleblower, mandated under the Dodd-Frank Act. In this exclusive interview with Compliance Week, McKessy offers an inside peek at the Whistleblower Program, his time at the SEC, and where he thinks companies still need to improve the effectiveness of their internal whistleblower programs.

CW: Walk us through the process of what it was like to establish the SEC’s Office of the Whistleblower from the ground up. What challenges did you encounter along the way?

SM: The first obvious challenge was sifting through and selecting the people who had applied for that position and assembling a team. I was given the opportunity to select people from other offices around the agency.

Once the team was in place, we had to move very quickly on what needed to get done and what needed to be prioritized. It required hitting the ground running. There was a lot for us to do in a relatively short period of time between the time I was hired in February 2011 and when the whistleblower program was set to take effect in August 2011.

A particular focus for me early on was making sure the staff understood our new statutory obligation [under the Dodd-Frank Act] to protect the confidentiality of whistleblowers who came forward. I was keenly aware that if it turned out—either in appearance or actuality—that whistleblowers feel that they come to the SEC at their peril, and the SEC will be cavalier about maintaining their confidentiality, then the program would be a non-starter. Nobody would come forward if they thought that the SEC wouldn’t be mindful of the whistleblower confidentiality protections. So during the early days, I spent a lot of time on educating staff broadly about what the program requires and, specifically, about making sure the staff understood how we would maintain the confidentiality of whistleblowers.

CW: In previous years, you served as corporate secretary for Altria Group and AOL, and as securities counsel for Caterpillar. How did your experience in the private sector influence your role as chief of the SEC’s Office of the Whistleblower?

There is still an antagonistic atmosphere around whistleblowers. When most companies implement a whistleblower program, the underlying theme of it is, ‘If you see something, say something.’ In execution, however, it becomes ‘If you see something, look the other way,’ or ‘if you say something, you’re going to be treated as if you’re a nuisance.’ That needs to change.

SM: Working in-house at three different companies has given me a keen understanding of which people in which job titles have access to what information. I think I had a unique understanding of that. For example, if a tip came in from an assistant controller, having worked with many of them, I know those are the kind of people who know where the bodies are buried, so to speak, when it comes to the guts of accounting. So if we received a tip from somebody with that particular job title, having had private-sector experience was helpful in providing perspective on how credible and how seriously that tip should be taken from an individual in that job role.

CW: Moving forward, do you foresee other regulatory bodies adopting whistleblower programs comparable to the SEC?

SM: It’s very fertile ground. We’ve seen unfortunate examples arising in the banking industry. The bank regulators don’t have comparable whistleblower programs. There are opportunities to consider whether something like the SEC Whistleblower Program is appropriate to allow for financial rewards for individuals who come forward and help prevent the catastrophic types of issues that seem to have happened in the banking industry.

CW: That brings about another point: Despite numerous efforts to protect whistleblowers legally, we still hear stories of whistleblowers whose concerns are being ignored. What advice would you give those who may want to blow the whistle—who know it’s the right thing to do—but are hesitant to come forward?

ABOUT SEAN MCKESSY

During Sean McKessy’s tenure as Chief of the Office of the Whistleblower, the SEC reviewed more than 14,000 whistleblower tips from individuals in every state in the country, as well as the District of Columbia and 95 foreign countries.

More than $85 million has been awarded to 32 whistleblowers. Because of the information and assistance provided by these whistleblowers, the SEC was able to bring successful enforcement actions in which more than $504 million was ordered in sanctions, including more than $346 million in disgorgement and interest for harmed investors. More than $453 million was collected in connection with these actions and successful related actions. 

McKessy also worked at the SEC from 1997 to 2000, serving as a senior counsel in the Enforcement Division. 

Previous in-house roles held by McKessy include corporate secretary for Altria Group and AOL, and as securities counsel for Caterpillar. In these roles, McKessy developed and supervised internal compliance and reporting programs related to the federal securities laws, served as corporate compliance officer, and coordinated the reporting of potential violations to boards of directors. 

McKessy received the SEC’s Law and Policy Award in 2011 for his involvement with the implementation of the Dodd-Frank Act.

SM: If you are willing to come forward, doing so anonymously through the SEC’s Office of the Whistleblower is a means through which you can express your concerns. You won’t have to disclose your identity to the SEC, at least at the outset. If and when you do come forward, the SEC has a statutory obligation to maintain your confidentiality. My experience in the seven weeks that I’ve been in my current role rings true with what I learned while running the SEC Whistleblower Program: The lion’s share of people who come to us are not thinking about the reward money. They’re thinking about preserving their jobs and not being exposed. So I just try to empower them by saying, “Here is what the program is intended to do to keep you protected.”

CW: How can companies improve the overall effectiveness of their internal whistleblower programs? Where do gaps remain?

SM: There is still an antagonistic atmosphere around whistleblowers. When most companies implement a whistleblower program, the underlying theme of it is, “If you see something, say something.” In execution, however, it becomes “If you see something, look the other way,” or “If you say something, you’re going to be treated as if you’re a nuisance.” That needs to change. If that can’t be fixed, the whole process falls apart.

It doesn’t matter how great you put your program together, whether you have a great anonymous helpline and are sending all the right messages over the company’s intranet. If people who come forward are treated poorly, moved to other offices, demoted, or fired, all those efforts don’t mean a thing.

Corrupt culture, and how it’s reflected in the way whistleblowers are treated in actuality, is the first and most influential factor. Where companies often fail is by elevating form over substance. If you think that your employees aren’t aware of how you’re implementing (or not implementing) policies and procedures, and that they don’t talk with each other, you’re very naïve. It won’t take very long for your culture to be communicated by the way the company acts. Treating whistleblowers who come forward as if they’re troublemakers is something that quickly permeates the enterprise and will create a problematic situation for the company.

Another common mistake is not treating whistleblowers seriously and keeping them in the dark about whether their concerns are being heard. In the time that I’ve been in my current role, what I hear all too often is “I tried everything I could internally, but they didn’t do anything,” or “maybe they did something, but they didn’t tell me they did anything.” Communicating the message of “you were heard. You were taken seriously. Here are the steps we took. Here is the conclusion we made” and doing that in a transparent way is absolutely critical. The easiest way to get on the wrong side of the SEC is to ignore a whistleblower or treat them badly because they raised an issue.

CW: How do you see the Whistleblower Program evolving under its new chief, Jane Norberg?

SM: I hired Jane in 2012 as deputy chief of the Office of the Whistleblower, so I have a lot of confidence in her. I think the SEC made a wise choice in making her the permanent chief. She’s a great leader. I have the utmost confidence that the program is in good hands. I wouldn’t have taken a job on this side of representing whistleblowers if I thought that the SEC program was going to be anything less than a spectacular success going forward, and I think Jane is off to a very strong start in that regard.

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